The Thesis

Constellation Brands

Over the past six years, Constellation Brands has "clearly" been one of the most attractive stocks within the consumer packaged goods group, Sharma said in the initiation note. Yet despite the stock's strong performance over this time period, the company is merely in the "early stages" of leveraging its competitive advantage in the U.S. beer and wine markets to realize faster and broader success and generate a "more pronounced" financial outperformance, the analyst said.

Part of the bullish stance stems from Constellation's biggest brand Corona, which is shifting from "breadth to depth" and boasts plenty of distribution ahead from the "mainstreaming" of the brand, the analyst said. As encouraging as this is to the growth story, Modelo's growth trajectory is "even higher" than Corona's and could eclipse Corona as the company's biggest brand, he said.

Aside from strength in beer, Constellation's wine business is "underappreciated" and stands to benefit from favorable consumption trends, especially as the company shifts toward higher-priced and higher-margin wine products, Sharma said.

Constellation's capital allocation and cash conversion outlook is "prudent," but positions the company to extend its reach through M&A activity in emerging and fast-growing categories like craft brown spirits and even cannabis, according to BMO Capital Markets.

Molson Coors

The 19-percent decline seen in Molson Coors over the past year is largely due to "misplaced investor concerns," but the stock represents an "untapped cash return story," according to Wall Street's newest bull analyst.

Molson Coors' management set out an objective of achieving flat volume growth in the U.S. in 2018 followed by positive growth by 2019, Sharma said. The company's 30 to 60 basis points of annual EBITDA margin expansion is "disappointing," but this should not translate to ongoing weakness in the stock, the analyst said.

Investors may be overlooking the beer company's "solid track record" of exceeding its cash savings targets and generating "strong and stable" free cash flows, Sharma said. Molson Coors is targeting $550 million in cost savings over three years, but if the company holds on to its non-Canadian international businesses, it could realize upside potential $60 to $80 million above the existing target, he said.

Molson Coors could also seek out strategic alternatives for its lower-margin European and international segments, which would accelerate the deleveraging of the balance sheet and result in a greater focus on the North American market, Sharma said. The company may be able to gain $4.25 billion to $4.75 billion for its international business — excluding Canada — if it were to shop for buyers, he said.

The company's growth will come from a "resurgent" whiskey market, along with contributions from emerging markets and faster-growing subcategories like Scotch and Irish whiskies, the analyst said.

Despite a favorable outlook, the stock is already trading at a "top-shelf valuation," Sharma said.

Brown-Forman's valuation is 400 to 600 basis points above its last three- and five-year average P/E and EV/EBITDA multiples of 26-27 times and 17-19 times, respectively, and its 2018 PEG ratio of 2.9 times is among the highest in the alcoholic, non-alcoholic and food sectors, according to BMO Capital Markets.